The U.S. District Court for the District of Columbia just dismissed a challenge from the Chamber of Commerce and the National Association of Manufacturers to the SEC's new requirement that companies disclose their use of conflict minerals from the Democratic Republic of Congo in their products. This is going to leave some companies in a pretty tough spot, while others are way ahead of the game.

Conflict minerals
The Democratic Republic of Congo, or DRC, is a rough place to be these days. Armed militias use the country's mineral wealth to fund violence and insurrection. In the eastern part of the country, fighting has continued for nearly 15 years, enabled by the trade in these conflict minerals. Millions of people have died, many more have been displaced, and rape has been widely usedas a weapon of war. Folks, this is as brutal as it gets.

So how are we involved? By way of our electronics. There are four main minerals in question:

  • Cassiterite is the ore for tin, which is a circuit-board solder.
  • Coltan is the ore for a rare metal called tantalum, which goes into capacitors.
  • Wolframite is the ore for tungsten, which makes your mobile phone vibrate.
  • Gold goes into electronics as a wire coating.

The illicit trade in these minerals provides fighting factions with tens of millions of dollars a year. 

Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act addresses the ongoing DRC conflict and companies' conflict mineral ties, both directly and through their supply chains. It tasked the SEC with implementing a rule that would require companies to disclose annually whether they use minerals in their products that originated in the DRC or an adjoining country.

This latest court challenge had asked that companies be exempted from the SEC requirement if their products contain only small amounts of the metals in question. The argument, in part, was that the rule posed an unduly costly burden on companies. In dismissing the case, the Court has made it impossible for companies to skirt the reporting requirement that begins next year.

"As is typical in these cases, we don't really know which companies were pushing the challenge forward, because they essentially used the Chamber of Commerce and NAM to launder their considerable lobbying money into efforts to resist important human rights regulations while keeping their corporate hands clean. Their efforts failed," said Simon Billenness, President of CSR Strategy Group. He went on:

This decision keeps in place the SEC rule requiring companies to file reports on their use of conflict minerals. It defeats the final, last-ditch attempts by the Chamber of Commerce and NAM to block this rule. That's why it's so significant. Now the law and the rules will operate as Congress and the SEC intended. 

Company performance
Here's the thing: It will be expensive and difficult for companies to comply with this rule. Some are ready. Others are not.

  • Canon (NYSE:CAJ) ranks among the worst performers in an analysis from The Enough Project. Among other shortcomings, the company does not identify smelters in its supply chain, and does not participate in any programs to source conflict-free minerals from the DRC region.
  • IBM (NYSE:IBM) falls in the middle of the pack when compared to other electronics companies. IBM also has not identified the smelters in its supply chain and has no policy requiring its suppliers to use conflict-free smelters. However, the company is working meaningfully to improve traceability in the region.
  • Advanced Micro Devices (NASDAQ:AMD) is among the top performers in Enough's rankings. It was one of only six companies to pilot the Organization for Economic Cooperation and Development's due diligence guidance on conflict minerals. While it still has some work to do to comply with the SEC's rule, the company is well on its way.
  • The gold standard, however, goes to Intel (NASDAQ:INTC). The company is at the top of Enough's ranking, and has been working on dealing with the conflict mineral issue for some time now. Intel is one of the few companies to publish and audit its smelters, and was the first company to commit to making a fully conflict-free product from the DRC by 2013. Intel has demonstrated genuine leadership in this area.

It's worth noting that in some cases, shareholders move on this issue even if the regulatory environment is unsettled. Cisco Systems (NASDAQ:CSCO) had a shareholder resolution on its 2012 proxy ballot related to conflict minerals. While Cisco was far from the worst performer -- the company has a conflict minerals policy that includes a requirement for conflict-free smelters -- the proponents wanted Cisco to study the feasibility of completely eliminating conflict minerals from its supply chain. The resolution received less than 8% support in proxy voting, but it demonstrated that the issue is on investors' radars. 

The bottom line
Conflict minerals are a nasty, cruel business all around. The SEC and the courts have determined that the fact that the issue is difficult and expensive to address is no excuse to perpetuate the status quo. Companies will now be held to account, and those that are ready for this shift will enjoy an advantage. Sometimes, it actually pays to be the good guy.

Fool contributor Sara Murphy has no position in any stocks mentioned. Follow her on Twitter @SMurphSmiles. The Motley Fool recommends Cisco Systems and Intel. The Motley Fool owns shares of Intel and International Business Machines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.